14 / 120
by
Julie Richie
12
|
MARCH 2017
|
INNOVATE
A
I would think things through
before accepting 120 days for
payment. I do not accept anything over 60
days within my company, and that needs
to be for a darn good reason.
Is this customer worth it? In my
experience, large buyers expect great
pricing. If they are asking you for bare
bones on margin to get their business, is
the onus on you to be their supplier as
well as their lender? Assess how much you
are really making when you consider thin
margins plus the amount of time invested
in the actual purchase plus interest that
you
pay when you pay your suppliers on
time but carry your customer.
Do you dictate terms to your suppliers?
Can you go to [a large industry supplier]
and tell them you have decided to extend
your payment terms to 120 days and still
have them continue to ship product to
you? I don’t know, maybe you can. (If you
can, tell me how!)
Large buyers may appear attractive
initially but they do require a lot of care
and feeding. I would evaluate them
thoroughly; if you’re spending 80 percent
of your time servicing a client that nets
you 20 percent of your volume, it may
be time to weigh the worth of the client.
If one thing goes wrong on a razor-
thin margin order, you’re “hooped”
(embroidery pun intended!).
Good clients aren’t bullies who dictate
terms to you.Theyworkwithin your
parameters and help to ensure that youwill
still be there the next time they need to order.
LORI TRAFFORD
Manager and Co-Owner
iPROMOTEu/Chesapeake
Promotion Corporation
PPAI 674444
The best way to handle these companies in
my opinion is to have an asset-based line of
credit with your bank or finance company.
Typically, lenders will base a line of
credit on the outstanding receivables and
inventory in hand. If the bank is lending
money to you based on your receivables, an
open invoice becomes something you can
borrow against.
Of course there is a cost to this, and it is
certainly important to identify what that
cost is before making pricing decisions.
Additionally, many of these customers
who want extended terms are willing to
pay faster with a discount, either directly
or through a third-party financer. Again,
this cost needs to be considered.
MIKE HOPKINS
Credit Manager
Paramount Apparel International
PPAI 133496
We require prepayment from all new
clients. It doesn’t matter if you’re a mom
and pop or a Fortune 500—no exceptions.
We then extend terms to clients based on
order volume and financial stability.
For instance, we have one client that
spends about $100,000 a year with us and
they have amultimillion-dollar-a-year
operating budget.They get net-30 terms and
usually pay in 15. We have another client
that spends about $5,000 a year with us
and they have a $200,000-a-year operating
budget.They get to prepay via credit card.
Extending terms is a decision you
have to make and be comfortable with.
Honestly, there’s nothing wrong with
asking a client to prepay orders. (I’d
recommend doing this via credit card and
building those fees into your costs—it’s
easier for you and the client.) But I can
count on one hand the number of sales
I’ve lost due to asking for prepayment,
and I’m pretty sure those sales would have
never been paid for had we not collected
payment in advance.
CHRIS CLARK, CAS
Owner
Radius Marketing Solutions
PPAI 620302
Q
A DISTRIBUTOR ASKS:
As a distributor who counts on timely payments to
meet financial obligations (including sales commissions for employees), how
should I handle clients who make paying in 120 days a regular part of doing
business with them? Or, how do you handle companies that look for any small mistake in
an invoice and automatically extend the payment by 30 days? I’ve had to decline contracts
because I can’t take the risk of the delayed payment.
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